concord grape production and est costs/wash/1996agribusiness-mgmt.wsu.edu/.../wine_grapes/eb1823.pdf · Title: concord grape production and est costs/wash/1996 Author: bishop Created

Farm Business Management Reports

EB1823E

CONCORD GRAPE ESTABLISHMENT AND PRODUCTION COSTS IN WASHINGTON, 1996

A. F. Aegerter R. J. Folwell

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CONCORD GRAPE ESTABLISHMENT ANDPRODUCTION COSTS IN WASHINGTON, 1996

by

A. F. Aegerter and R. J. Folwell*

INTRODUCTION

Washington is the leading state in Concord grape production, and accounts for more than 50percent of the U.S. production (Washington Grape Report, January 24, 1996). Since theintroduction of Concord grapes as an agricultural crop in Washington, acreage devoted toConcord grape vineyards has grown. Concord grapes are grown mainly in south centralWashington, where acreage was about 20,525 in 1984, declined slightly throughout the late1980s, and rebounded to approximately 23,000 in 1994. The decrease in acreage was the resultof a downward trend in market prices due to high inventory levels. In 1984, the average cashprice for 16 Brix Concord grapes was only $80 per ton, which is the lowest price since the 1960s. A drop in inventories in the following years along with increased interests in export markets toPacific Rim countries increased the cash price in 1989 and 1990 to $240 per ton. More Concordgrape acreage was planted. The 1995 cash price averaged $120 per ton for 16 Brix Concordgrapes in Washington.

The removal and planting of Concord grapes involves a significant amount of capital. Thepurpose of this study was to estimate 1996 economic costs of developing and operating aConcord grape vineyard in Washington.

Concord grapes are a perennial crop which do not reach full production until about the fifth yearafter planting. As a result, large capital outlays must be made prior to full production. Toestimate the economic costs of developing a vineyard, this study specifically sought to:

1. Specify the viticultural practices normally followed in Washington to establish and maintain a30-acre vineyard of Concord grapes.

2. Estimate the costs of those practices and compare them with the receipts from the grapes toestablish profitability levels.

3. Calculate the break-even prices necessary to justify the development of the vineyard.

*Respectively, Research Associate and Professor, Department of Agricultural Economics,

College of Agriculture and Home Economics, Washington State University, Pullman, WA 99164-6210.

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Several points need to be clarified about the approach used in this study. There are two basictypes of budgets. The first type, referred to as cash budgets, consists of cash costs plusdepreciation and cash receipts. The second type of budget is called an economic budget. Economic budgets are used in this study because they reflect the full costs and returns over theuseful life of assets.

The economic budgets include both cash and noncash costs. Noncash costs include opportunitycosts, i.e., opportunities in other investments which can be thought of as foregone income. Totalcosts and returns are important in determining profitability and are useful for those contemplatingentering or exiting the industry. Costs may also be categorized as fixed and variable. Fixed costsare those incurred despite the level of production. Land tax is an example of a fixed cost. Variable costs are those such as harvest labor, which differ depending on the level of production.

BUDGET ASSUMPTIONS

The production information used to formulate the budgets is not a guide to recommendedviticultural practices, but rather is intended to represent a typical vineyard and the costs associatedwith its development. The budgets reflect costs based on these assumed growing and operatingconditions.

The major assumptions used to calculate the vineyard costs were:

1. A 30-acre Concord grape vineyard is to be developed on a 40-acre, owner-operator farmwith five acres of headland and five acres of homestead.

2. The vineyard is planted with No. 1 certified Concord grape nursery stock.

3. The vineyard is managed by the owner-operator whose annual salary is equivalent to 7percent of the gross revenues of an established vineyard. This salary is referred to as amanagement fee in the budgets.

4. A solid-set sprinkler irrigation system is used on relatively level ground. The irrigationsystem and its 20-horsepower motor/pump are purchased new at a cost of $1,000 per acreand depreciated over a 10-year period.

5. The grapes are planted with a 9 x 7 foot spacing with 691 plants per acre.

6. All grape hauling is done on a custom basis. The hauling cost is assumed to be $12 per ton. This cost was derived from Washington Utilities and Transportation Commission Tariff 4-Awhich has been voided due to deregulation.

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7. Establishment costs are amortized over 20 years at 10 percent interest. They consist of totalcosts in the four years of establishment minus the receipts from the third- and fourth-yearpartial crops. The amortization factor is 0.12. Multiplication of yearly establishment costsby this factor equals the depreciation and interest on the yearly investment. Amortizedestablishment costs are shown by year in the itemized cost tables.

8. The 1996 irrigation water charge of $67 per acre is based on charges used in the RozaIrrigation District.

9. The electrical rate for the irrigation system is derived from the Benton County PUD. The1996 facility charge is $7.45 per horsepower. The energy charge is $0.029 per kilowatt hour(kwh) during March 21 to August 20, and $0.0456 per kwh from August 21 to March 20. An energy credit of $0.00471 per kwh is applied against the energy charge for the periodbetween March 21 and October 20. In calculating the total energy cost for the solid-setirrigation system, it was assumed that 85 percent of the irrigation takes place in the firstperiod (3/21 to 8/20) and 15 percent in the second period (8/21 to 3/20). The respectiveelectricity use in the first and second years is 40 percent and 70 percent of the kwh used inyear three and thereafter.

10. The real estate taxes are for Benton and Yakima Counties in 1996. The assessments varydepending on the age of the vineyard. The first year real estate tax is $31.05 per acre for theland and irrigation system. The second and third year real estate taxes rise to $58.57 per acreto include the vines and trellis system. The real estate taxes are $70.39 per acre for thefourth and remaining years reflecting that the vineyard is near or at full production.

11. All land is assumed to be owned by the operator, and both operating and investment capitalcosts 10 percent. These rates are assumed to represent the average interest rates during theestablishment period.

12. All machinery and equipment is assumed to be new and valued at current market prices(Appendix A). Hourly fixed costs (depreciation, interest, insurance, taxes, and housing) andvariable costs (repairs, fuel, and lubrication) are calculated by the Farm Enterprise BudgetSimulator (FEBS) according to PNW 346, "The Costs of Owning and Operating FarmMachinery in the Pacific Northwest." The 3/4-ton pickup and 4-wheel cycle fixed andvariable costs are included in the tractor costs.

13. Personal property taxes from Benton and Yakima Counties in 1996 are estimated to be 1.5percent of average value ($15.00 per $1,000 of assessed value).

14. Vines are pruned with a mechanical pruner, followed by hand trimming.

15. A bilateral cordon training system with a vertical trellis is used.

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16. The 1996 prices for selected inputs (including sales tax) are:

Labor $5.50/hourGasoline $1.20/gallonDiesel $1.029/gallonNitrogen Fertilizer

(Ammonium Nitrate) $.24/poundSurflan 4AS/gal (Oryzalin) $70.00/gallonDormant Oil $3.00/gallonProwl $35.00/gallonRoundup (Glyphosate) $40.00/gallonCover Crop Seal (Companion) $1.70/pound#11 Wire HT $.50/poundConcrete Anchor 8" x 8" x 8" $.61/eachTrellis Post 4" x 8" $4.00/each

17. The vineyard yields three tons of grapes per acre in the third year, six tons in the fourth year,and eight tons at maturity in year five and each year thereafter. The grapes are sold for $180per ton.

ANNUAL ESTABLISHMENT COSTS FOR A 30-ACRECONCORD GRAPE VINEYARD

The first four years in the development of a grape vineyard are devoted to preparing the vineyardfor its productive life averaging 20 years. In addition to working the land, planting the vines,installing the trellis system, and other preparatory activities, routine viticultural practices are alsoperformed. The costs of these activities are detailed and discussed in the remainder of thissection.

First-Year Establishment Cost

The activities and corresponding per-acre costs in the first year of the vineyard’s development aredetailed in Table 1. Table 2 shows the itemized costs of the operations as well as the quantities ofthe materials used.

Once the soil is prepared to receive the vines and the land is surveyed to mark the rows, the solid-set irrigation system is installed. The solid-set irrigation system is depreciated over a ten-yearperiod. The total fixed cost (depreciation, tax, interest, and insurance) of the system on a per-acrebasis is $221.00 which was estimated with the aid of EB 1166, "Estimating Irrigation Pumpingand Sprinkler System Costs." Water is applied from April through October.

The vines are planted using a mechanical vine planter pulled by a 100-horsepower tractor. Theplanter is rented for $6.50 per acre and the tractor with driver are rented at $30 per acre. Twolaborers are used on the planter for a total of 2.75 hours per acre. Each acre is planted with 691#1 certified Concord grape vines.

TABLE 1. SCHEDULE OF FIRST-YEAR ESTABLISHMENT OPERATIONS AND PER ACRE COSTS FOR A 30-ACRE CONCORD GRAPE VINEYARD

VARIABLE COST

OPERATION TOOLING MTH YEARMACHHOURS

LABORHOURS

TOTALFIXEDCOST

FUEL,LUBE, &REPAIRS

MACHLABOR SERVICE MATER. INTER.

TOTALVARIABLECOST

TOTALCOST

$ $ $ $ $ $ $ $

DISK 50 HP, DISK FEB 1996 .57 .63 6.68 2.42 3.47 .00 .00 .39 6.28 12.96

PLOW CUSTOM PLOWING MAR 1996 .00 .00 .00 .00 .00 15.00 .00 .88 15.88 15.88

SURVEY & MARK LABOR, STAKES MAR 1996 .00 .40 .00 .00 2.20 .00 1.44 .21 3.85 3.85

LISTING CUSTOM LISTING APR 1996 .00 .00 .00 .00 .00 8.00 .00 .40 8.40 8.40

PLANT VINES 100HP, VINE PLANTER, LABOR APR 1996 .00 2.75 .00 .00 15.12 36.50 449.15 25.04 525.81 525.81

FILL-IN 50HP, DISK (3X) APR 1996 1.72 1.89 20.05 7.27 10.40 .00 .00 .88 18.55 38.60

IRRIGATION SYSTEM START-UP APR 1996 .00 .80 .00 .00 4.40 .00 .00 .22 4.62 4.62

HOEING HAND HOEING JUN 1996 .00 2.00 .00 .00 11.00 .00 .00 .37 11.37 11.37

WEED CONTROL 50HP, SPRAYER JUN 1996 .46 .50 10.77 1.83 2.77 .00 28.00 1.09 33.69 44.46

CULTIVATE 50HP, DISK JUN 1996 .57 .63 6.68 2.42 3.47 .00 .00 .20 6.09 12.77

PLANT COVER CROP 50HP, RENTED SEEDER JUL 1996 .57 .57 5.56 1.90 3.14 6.50 21.48 .83 33.84 39.41

HOEING HAND HOEING JUL 1996 .00 2.00 .00 .00 11.00 .00 .00 .28 11.27 11.27

ROTOVATE 50HP, ROTOVATOR JUL 1996 .57 .63 7.25 2.55 3.47 .00 .00 .15 6.17 13.42

HOEING HAND HOEING AUG 1996 .00 2.00 .00 .00 11.00 .00 .00 .18 11.18 11.18

MOW COVER CROP 50HP, MOWER SEP 1996 .57 .63 6.61 2.45 3.47 .00 .00 .05 5.96 12.57

IRRIGATION SYSTEM SHUT DOWN OCT 1996 .00 .80 .00 .00 4.40 .00 .00 .00 4.40 4.40

WEED CONTROL 50HP, SPRAYER, PROWL OCT 1996 .46 .50 10.77 1.83 2.77 .00 35.00 .00 39.60 50.37

SPREAD ENDPOSTS 50HP, TRAILER OCT 1996 .46 .50 7.83 2.06 2.77 .00 64.00 .00 68.83 76.66

SET ANCHORS 50HP, RENTALS, LABOR OCT 1996 2.25 2.72 21.97 7.51 14.96 3.40 109.76 .00 135.63 157.59

SET ENDPOSTS 50HP, RENTALS, LABOR OCT 1996 4.75 5.75 46.37 15.85 31.62 8.60 .00 .00 56.08 102.45

MANAGEMENT FEE 7% OF GROSS REVENUE ANN 1996 .00 .00 .00 .00 .00 100.80 .00 5.04 105.84 105.84

TAXES REAL ESTATE ANN 1996 .00 .00 31.05 .00 .00 .00 .00 .00 .00 31.05

IRRIGATION IRRIGATE APRIL-OCTOBER ANN 1996 .00 1.00 221.00 .00 5.50 .00 95.67 5.06 106.23 327.23

PICKUP MISC USE SEA 1996 3.60 3.96 64.94 30.90 21.78 .00 .00 2.63 55.31 120.25

4-WHEEL CYCLE MISC. USE SEA 1996 .91 1.00 6.81 3.85 5.50 .00 .00 .47 9.81 16.63

LAND NET LAND RENT SEA 1996 .00 .00 125.00 .00 .00 .00 .00 .00 .00 125.00

MISC UTILITIES, TELEPHONE, ETC SEA 1996 .00 .00 .00 .00 .00 70.00 .00 3.50 73.50 73.50

TOTAL PER ACRE 17.47 31.67 599.34 82.83 174.201 248.80 804.50 47.86 1358.19 1957.54

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TABLE 2. DETAILED FIRST-YEAR ESTABLISHMENT PER ACRE COSTS FOR A 30-ACRE CONCORD GRAPE VINEYARD

UNIT PRICE ORCOST/UNIT QUANTITY VALUE OR

COSTYOURFARM

VARIABLE COSTS $ $

CUSTOM PLOWING ACRE 15.00 1.00 15.00

SURVEY STAKES EACH .06 24.00 1.44

CUSTOM LISTING ACRE 8.00 1.00 8.00

PLANTER RENTAL ACRE 6.50 1.00 6.50

TRACT & DRIV RENT ACRE 30.00 1.00 30.00

NURSERY STOCK EACH .65 691.00 449.15

SURFLAN 4AS/GAL GAL 70.00 .40 28.00

SEEDER RENTAL ACRE 6.50 1.00 6.50

COMPANION SEED LBS 1.79 12.00 21.48

TRELLIS POST EACH 4.00 16.00 64.00

POSTDRIVER RENT ACRE 8.60 1.00 8.60

PROWL GAL 35.00 1.00 35.00

POST DIGGER ACRE 3.40 1.00 3.40

CONCRETE ANCHOR EACH .61 16.00 9.76

#11 HT WIRE LBS .50 200.00 100.00

MANAGEMENT FEE ACRE 100.80 1.00 100.80

IRR REPAIRS ACRE 10.00 1.00 10.00

IRR ELECT (Y1) ACRE 18.67 1.00 18.67

IRR WATER ACRE 67.00 1.00 67.00

MISC ACRE 70.00 1.00 70.00

INTEREST ON OP. CAP. DOL. .10 478.55 47.86

TRACTOR REPAIR ACRE 44.63 1.00 44.63

TRACTOR FUEL/LUBE ACRE 35.14 1.00 35.14

MACHINERY REPAIRS ACRE 3.06 1.00 3.06

MACHINE FUEL/LUBE ACRE .00 1.00 .00

LABOR (TRAC/MACH) ACRE 174.21 1.00 174.21

TOTAL VARIABLE COST 1358.19

FIXED COSTS $ $

TRACTOR DEPRECIATION ACRE 91.80 1.00 91.80

TRACTOR INTEREST ACRE 77.80 1.00 77.80

TRACTOR INSURANCE ACRE 14.04 1.00 14.04

TRACTOR TAXES ACRE 11.67 1.00 11.67

TRACTOR HOUSING ACRE 8.19 1.00 8.19

MACHINE DEPRECIATION ACRE 9.31 1.00 9.31

MACHINE INTEREST ACRE 7.24 1.00 7.24

MACHINE INSURANCE ACRE .43 1.00 .43

MACHINE TAXES ACRE 1.09 1.00 1.09

MACHINE HOUSING ACRE .72 1.00 .72

R ESTATE TAX Y1 ACRE 31.05 1.00 31.05

IRR EQUIPMENT ACRE 221.00 1.00 221.00

NET LAND RENT ACRE 125.00 1.00 125.00

TOTAL FIXED COST 599.34

TOTAL COST 1957.54

1While the owner-operator will not actually experience a land rent cost, the land rentrepresents the minimum return the owner-operator must have to justify growing this crop on theland. The net rental return represents the income the owner-operator forgoes by producing thiscrop on the land rather than renting it to a tenant. As a result of investing capital in the land, thefarmer receives both current returns from crop production activities and any long-term land valueappreciation. However, the farmer would continue to receive land value appreciation even if theland were rented out. Consequently, the appropriate land charge for growing the crop is only thenet rent lost. As used in this publication, the land cost is termed an opportunity cost to indicatethat it is not an out-of-pocket expense, but rather a return that is foregone. To consider theprofitability of crop production relative to other activities, the owner-operator will want toconsider these foregone returns, or opportunity costs, along with the usual production expenses.

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Weed management activities (chemical application, cultivation, and three hand hoeings) dominatethe summer months. A rotovator is used to prepare the soil for the perennial cover crop which isplanted in late July and mowed in September. Endposts and anchors are installed for the trellissystem in the fall. The remainder of the trellis is installed in the second year.

A number of the annual and seasonal costs require explanation. The net land rent of $125 can beconsidered an opportunity cost in terms of income foregone by investing in the Concord grapevineyard.1 The net land rent of $125 per acre represents a minimum return of 5 percent of theland’s current market value, assumed to be $2,500 per acre. It is also assumed the land couldhave been rented for this amount minus the real estate taxes. The interest on operating capital isincluded to account for the cost of the money expended during the year. In the first year, eachacre requires 31.67 hours of operator and hired labor. The total cost per acre in the first year is$1,957.54.

Second-Year Establishment Costs

The second year has the highest annual cost. The schedule of operations and itemized costsummary are shown in Tables 3 and 4, respectively. The total cost per acre for the second year is$3,724.58.

The installation of the trellis system is completed in March. Trellis posts are the major cost itemin the second year. Line posts are installed with one post between every other vine. Two wiresare strung along the posts, one on top and one at the midsection. The total investment costs ofthe trellis system amounts to $2,375.23 per acre. Many labor-intensive activities bring thesecond-year labor requirements to 97.5 hours per acre. Most of the labor is involved withsummer training. The vines are pruned in the spring by both mechanical and hand methods. Thevines are then trained during the summer. Ten percent of the vines need to be replaced and thenew vines are planted by hand.

Beginning the second year, an interest on accumulated investment cost is incorporated into thebudget. This accounts for interest actually paid on borrowed money or returns that could havebeen earned in an alternative investment. The amount is based on the previous year’s expenses.

TABLE 3. SCHEDULE OF SECOND-YEAR ESTABLISHMENT OPERATIONS AND PER ACRE COSTS FOR A 30-ACRE CONCORD GRAPE VINEYARD

VARIABLE COST


LABORHOURS

TOTALFIXEDCOST

FUEL,LUBE, &REPAIRS


TOTALVARIABLECOST

TOTALCOST

$ $ $ $ $ $ $ $

SPREAD LINEPOSTS 50HP, TRAILER MAR 1997 1.30 1.23 22.20 5.83 6.76 .00 1348.00 79.37 1439.96 1462.16

SET LINEPOSTS 50HP, RENTALS, LABOR MAR 1997 11.40 13.80 111.30 38.04 75.90 8.60 .00 7.15 129.69 240.99

STRING WIRE 50HP, TRAILER, LABOR MAR 1997 1.10 14.90 18.79 4.93 81.95 .00 212.26 17.45 316.60 335.38

PRUNING, TIES 50HP, MECH PRUNER MAR 1997 1.20 5.00 25.32 12.23 27.50 .00 110.35 8.75 158.84 184.16


FERTILIZE 50HP, FERT SPRDR RENTAL APR 1997 .76 .92 7.42 2.54 5.06 3.55 12.00 1.16 24.30 31.72

HOEING HAND HOEING APR 1997 .00 2.00 .00 .00 11.00 .00 .00 .55 11.55 11.55

WEED CONTROL 50HP, SPRAYER APR 1997 .46 .50 10.77 1.83 2.77 .00 28.00 1.63 34.23 45.00

REPLANT (10%) HAND PLANTING APR 1997 .00 7.80 .00 .00 42.90 .00 45.50 4.42 92.82 92.82

HOEING HAND HOEING MAY 1997 .00 2.00 .00 .00 11.00 .00 .00 .46 11.46 11.46

MOW COVER CROP 50HP, MOWER MAY 1997 .57 .63 6.61 2.45 3.47 .00 .00 .25 6.16 12.62

SUMMER TRAINING LABOR JUL 1997 .00 39.90 .00 .00 219.45 .00 .00 5.49 224.94 224.94

MOW COVER CROP 50HP, MOWER JUL 1997 .57 .63 6.58 2.43 3.46 .00 .00 .25 6.05 12.77







4-WHEEL CYCLE MISC USE SEA 1997 .91 1.00 6.81 3.85 5.50 .00 .00 .47 9.81 16.63


ESTABLISH COST INTEREST ON ACCUM INVEST SEA 1997 .00 .00 195.75 .00 .00 .00 .00 .00 .00 195.75

IRRIGATION IRRIGATE APRIL-OCTOBER SEA 1997 .00 1.00 221.00 .00 5.50 .00 109.67 5.76 120.93 341.93

TOTAL PER ACRE 22.44 97.50 887.63 107.45 536.27 182.95 1865.79 144.49 2836.95 3724.58

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TABLE 4. DETAILED SECOND-YEAR ESTABLISHMENT PER ACRE COSTS FOR A 30-ACRE CONCORD GRAPE VINEYARD


COSTYOURFARM

VARIABLE COSTS $ $

TWINE FOOT .04 2758.80 110.35

#11 HT WIRE LBS .50 424.53 212.26

POSTDRIVER RENT ACRE 8.60 1.00 8.60


NURSERY STOCK EACH .65 70.00 45.50

FERT SPRDR RENT ACRE 3.55 1.00 3.55

NITROGEN LBS .24 50.00 12.00



MISC ACRE 70.00 1.00 70.00


IRR ELECT (Y2) ACRE 32.67 1.00 32.67

IRR WATER ACRE 67.00 1.00 67.00








FIXED COSTS $ $










MACHINE HOUSING ACRE 1.36 1.00 1.36



INT INVEST (Y1) ACRE 1957.54 .10 195.75



TOTAL COST 3724.58

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Third-Year Establishment Costs

The operations and detailed costs during the third year of the vineyard’s development are shownin Tables 5 and 6, respectively. The total cost per acre is $1,811.55. In the fall of the third year,three tons of grapes are harvested which generated $540 in revenues per acre.

An insect control program is started in the third year which involves the application of fourgallons of dormant oil per acre. The pruning and training of the vines are continued. The annuallabor budgeted in the third year is 20.68 hours per acre.

Fourth-Year Establishment Costs

The operations in the fourth year of establishment largely consist of routine viticultural practicessince the vineyard is nearly established and the trellis system is in place. The operation costs areshown in Table 7. A detailed list of inputs is presented in Table 8. Almost 20 hours of operatorand hired labor are budgeted per acre in the fourth year.

In year four, the vineyard produces six tons of grapes per acre which are mechanically harvestedat a custom rate of $30 per ton. Pruning, insect control, weed management, and vine training arecontinued in the fourth year. The total cost of the vineyard operations is $2,076.58 per acre.

Summary of Establishment Costs

The per-acre cost of establishing the Concord grape vineyard, the revenue obtained from thegrapes, and the net investment are summarized in Table 9. In each establishment year, total costsexceed total revenues yielding a negative return and positive net investment costs.

Determining the total cost of establishing a 30-acre vineyard of Concord grapes is accomplishedby multiplying the $7,950.22 per acre net investment cost by 30 acres. This product yields a totalnet investment cost of $238,506.60. This figure does not include the cost of housing that may beneeded for the manager, owner, and/or laborers.

PRODUCTION COSTS AND BREAK-EVEN PRICES FOR A MATURE30-ACRE CONCORD GRAPE VINEYARD

It is assumed by the fifth year after planting the vineyard is at full production and produces a yieldof eight tons of Concord grapes per acre. This section summarizes the costs of producing thegrapes and shows the farm level price necessary to cover the variable and fixed costs of Concordgrape production.

TABLE 5. SCHEDULE OF THIRD-YEAR ESTABLISHMENT OPERATIONS AND PER ACRE COSTS FOR A 30-ACRE CONCORD GRAPE VINEYARD

VARIABLE COST


LABORHOURS

TOTALFIXEDCOST

FUEL,LUBE, &REPAIRS


TOTALVARIABLECOST

TOTALCOST

$ $ $ $ $ $ $ $

PRUNING, TIES 50HP, MECH PRUNER MAR 1998 1.20 .50 25.32 12.23 2.75 .00 11.04 1.52 27.54 52.86

INSECT CONTROL 50HP, SPRAYER MAR 1998 .46 .51 10.81 1.84 2.78 .00 12.00 .97 17.59 28.39


WEED CONTROL 50HP, SPRAYER APR 1998 .46 .50 10.77 1.83 2.77 .00 28.00 1.63 34.23 45.00

FERTILIZE 50HP, FERT SPRDR RENTAL APR 1998 .76 .92 7.42 2.54 5.06 3.55 18.00 1.46 30.60 38.02



SUMMER TRAINING LABOR JUL 1998 .00 6.80 .00 .00 37.40 .00 .00 .94 38.34 38.34




HARVEST CUSTOM MECH HARVEST OCT 1998 .00 .00 .00 .00 .00 90.00 .00 .00 90.00 90.00

HAULING CUSTOM HAULING OCT 1998 .00 .00 .00 .00 .00 36.00 .00 .00 36.00 36.00





ESTABLISH COST INTEREST ON ACCUM INVEST SEA 1998 .00 .00 568.21 .00 .00 .00 .00 .00 .00 568.21




TOTAL PER ACRE 9.10 26.68 1118.61 60.49 113.74 300.35 192.72 25.64 692.94 1811.55

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TABLE 8. DETAILED FOURTH-YEAR ESTABLISHMENT PER ACRE COSTS FOR A 30-ACRE CONCORD GRAPE VINEYARD


COSTYOURFARM

VARIABLE COSTS $ $

GRAPE TIES ACRE 1.60 1.00 1.60

DORMANT OIL GAL 3.00 4.00 12.00


NITROGEN LBS .24 100.00 24.00


CUSTOM HAULING TON 12.00 6.00 72.00

MECH HARV TON 30.00 6.00 180.00



IRR ELECT (Y3+) ACRE 46.68 1.00 46.68

IRR WATER ACRE 67.00 1.00 67.00

MISC ACRE 70.00 1.00 70.00








FIXED COSTS $ $










MACHINE HOUSING ACRE .96 1.00 .96


INT INVEST (Y1) ACRE 1957.54 .10 195.75

INT INVEST (Y2) ACRE 3724.58 .10 372.46

INT INVEST (Y3) ACRE 1271.55 .10 127.15




TOTAL COST 2076.58

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Table 9.Summary of 1996 Net Investment Costs in Establishing a 30-Acre Concord Grape Vineyard ($/acre).

Establishment Years TotalCost Category First Second Third Fourth Establishment CostReceipts:

Yields (tons) 0 0 3 6 9Price ($/ton) 180 180 180 180 180 Revenue 0 0 540 1080 1620

Variable Costs:Preharvest 1358.19 2836.95 322.48 317.34 4834.96Harvest 0 0 126.00 252.00 378.00Postharvest 0 0 244.46 244.46 488.92

Total Variable Costs 1358.19 2836.95 692.94 813.80 5701.88

Fixed Costs:Trac/Pickup/4WHL 203.50 252.45 120.32 125.15 701.42Machinery 18.79 34.85 25.51 25.87 105.02Irrigation 221.00 221.00 221.00 221.00 884.00Net Land Rent 125.00 125.00 125.00 125.00 500.00Real Estate Tax 31.05 58.57 58.57 70.39 218.58Interest on Accumulated Investment ---- 195.75 568.21 695.36 1459.32

Total Fixed Costs 599.34 887.62 1118.61 1262.77 3868.34

Total Costs 1957.53 3724.57 1811.55 2076.75 9570.22

Net Investment Costs 1957.53 3724.57 1271.55 996.57 7950.22

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Mature Vineyard Costs

The per-acre total cost associated with maintaining a 30-acre Concord grape vineyard is$2,467.56 (Tables 10 and 11). Operator and hired labor requirements amount to 18.53 hours peracre for the established vineyard. The amortized establishment cost, which includes interest andall other establishment costs, is the single largest cost at $934.16 per acre.

Break-Even Prices

The break-even selling prices for Concord grapes necessary to cover different costs at variousyields are presented in Table 12. The break-even selling price to cover variable costs representsthe price that must be received to cover the costs that occur only if the established crop isproduced and harvested. If the actual cash price is less than this break-even price, the vineyard isan uneconomical investment in the short run. Short-run, break-even prices range from $82.88 at15 tons per acre to $246.43 per ton for a vineyard only yielding three tons per acre. For example,the variable costs of a vineyard yielding eight tons per acre will be covered with a selling price of$118.66 per ton.

The break-even selling price for total costs represents the price that must be received in order forthe vineyard to cover costs and stay in business over the long run. In a mature vineyard,approximately 60 percent of the total costs per acre are fixed costs, i.e., costs incurred regardlessof the level of production. This means that the break-even prices to cover total costs are muchhigher than the break-even prices to cover variable costs. If the price received is less than thisbreak-even price, an alternative investment should be pursued which produces a larger return tomanagement, labor, and capital. If the actual price is greater than this break-even price, theoperator covers all costs and earns a profit. Break-even prices range from $184.09 per ton for ayield of 15 tons per acre to $752.51 per ton for a vineyard yielding just three tons per acre. Ayield of eight tons per acre requires a selling price of $308.44 per ton to cover total costs. This is$128.44 per ton more than the price assumed in preparing this budget study. From a break-evenperspective, at the prevailing price of $180 per ton, an established vineyard must yield over 15tons per acre to break even in the long run.

TABLE 10. SCHEDULE OF OPERATIONS AND PER ACRE COSTS FOR AN ESTABLISHED 30-ACRE CONCORD GRAPE VINEYARD

VARIABLE COST


LABORHOURS

TOTALFIXEDCOST

FUEL,LUBE, &REPAIRS


TOTALVARIABLECOST

TOTALCOST

$ $ $ $ $ $ $ $

PRUNING, TIES 50HP, MECH PRUNER FEB 2000 1.20 1.50 25.32 12.23 8.25 .00 1.60 1.47 23.55 48.87

TRELLIS REPAIR 50HP, TRAILER, MATERIALS FEB 2000 .92 3.11 15.71 4.13 17.11 .00 75.25 6.43 102.91 118.62

CHOP PRUNINGS 5HP, MOWER MAR 2000 .45 .50 5.19 1.92 2.72 .00 .00 .27 4.91 10.11

FERTILIZE 50HP, FERT SPRDER RENTAL MAR 2000 .76 .92 7.42 2.54 5.06 3.55 24.00 2.05 37.20 44.62

INSECT CONTROL 50HP, SPRAYER MAR 2000 .46 .51 10.81 1.84 2.78 .00 12.00 .97 17.59 28.39



SPOT WEED CONTROL 50HP, SPRAYER JUN 2000 .50 .55 11.75 2.00 3.03 .00 3.20 .27 8.49 20.24





HARVEST CUSTOM MECH HARVEST OCT 2000 .00 .00 .00 .00 .00 240.00 .00 .00 240.00 240.00

HAULING CUSTOM HAULING OCT 2000 .00 .00 .00 .00 .00 96.00 .00 .00 96.00 96.00








ESTABLISH COSTS AMORTIZED ESTABLISHMENTCOSTS

SEA 2000 .00 .00 934.15 .00 .00 .00 .00 .00 .00 934.15

TOTAL PER ACRE 10.51 18.53 1518.25 66.70 101.92 510.35 239.73 30.60 949.30 2467.56

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EB1823C18

TABLE 11. DETAILED PER ACRE COSTS FOR AN ESTABLISHED 30-ACRE CONCORD GRAPE VINEYARD


COSTYOURFARM

VARIABLE COSTS $ $

TRELLIS MATERIAL ACRE 3.25 1.00 3.25


GRAPE TIES ACRE 1.60 1.00 1.60

DORMANT OIL GAL 3.00 4.00 12.00


NITROGEN LBS .24 100.00 24.00

ROUNDUP GAL 40.00 .08 3.20

MECH HARV TON 30.00 8.00 240.00

CUSTOM HAULING TON 12.00 8.00 96.00


MISC ACRE 70.00 1.00 70.00


IRR ELECT (Y3+) ACRE 46.68 1.00 46.68

IRR WATER ACRE 67.00 1.00 67.00








FIXED COSTS $ $










MACHINE HOUSING ACRE 1.22 1.00 1.22

R ESTATE TAX Y5+ ACRE 70.39 1.00 70.39



INT INVEST (Y1) ACRE 1957.54 .12 230.01

INT INVEST (Y2) ACRE 3724.58 .12 437.64

INT INVEST (Y3) ACRE 1271.55 .12 149.41

INT INVEST (Y4) ACRE 966.58 .12 117.10


TOTAL COST 2467.56

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TABLE 12. BREAK-EVEN SELLING PRICES OF CONCORD GRAPES ATVARIOUS YIELDS (TONS/ACRE)

BREAK-EVEN ($/TON) NECESSARY TO COVER:

YIELD VARIABLECOSTS

FIXED COSTS TOTAL COSTS

3 246.43 506.08 752.51

4 195.32 379.56 574.88

5 164.66 303.65 468.31

6 144.21 253.04 397.25

7 129.61 216.89 346.50

8 118.66 189.78 308.44

9 110.14 168.69 278.83

10 103.33 151.82 255.15

11 97.75 138.02 235.77

12 93.11 126.52 219.63

13 89.17 116.78 205.95

14 85.81 108.45 194.26

15 82.88 101.21 184.09

CONCLUSION

The establishment of a perennial crop such as a Concord grape vineyard has many costs before acrop is produced. These costs must be recovered in the vineyard’s productive years. Based onthe assumptions of the vineyard used for this study, the establishment of a 30-acre Concord grapevineyard in Washington would be unprofitable given current prices and historical yields.

It is recognized that costs vary widely from farm to farm. Viticulturists can be very efficient intheir production techniques which, in turn, may lower costs. Readers utilizing this manual mustrealize that this study used new machinery costs and included all economic costs. These costsmay make a profitable enterprise appear unprofitable. Thus, this study should not be generalizedto vineyard practices outside the assumptions used in the study. However, it does provide abenchmark for analyzing the economics of Concord grape production in the state of Washington.

EB1823C20

REFERENCES

Folwell, Raymond J (1995). The Washington Concord Grape Industry: Pricing and SupplyResponse Aspects. AgEc #95-11, Department of Agricultural Economics, WashingtonState University.

Schimmel, Joseph G., Raymond J. Folwell, and Robert Wample. The Economics of Establishingand Operating a Concord Grape Vineyard. EB 1572, Cooperative Extension, WashingtonState University.

Smathers, Robert L. and Gayle S. Willett (1989). The Costs of Owning and Operating FarmMachinery in the Pacific Northwest. PNW 346, Pacific Northwest CooperativeExtension.

Washington Agricultural Statistics Service. Washington Grape Report. USDA and WashingtonState Department of Agriculture, Olympia, WA: Jan. 24, 1996.

Willett, Gayle S., Richard W. Dunford, and M. Anthony Wright (1982). Estimating IrrigationPumping and Sprinkler System Costs. EB 1166, Cooperative Extension, WashingtonState University.

APPENDIX A. EQUIPMENT COMPLEMENT FOR A 30-ACRE CONCORD GRAPE VINEYARD, 1996

MACHINERYPURCHASEPRICE

YEARSTO

TRADEANNUALHOURS

DEPRECIATION INTEREST INSURANCE TAXES HOUSING

TOTAL FIXEDCOST REPAIR

FUEL ANDLUBE

TOTALVARIABLECOST

TOTALCOST

$ $ $ $ $ $ $ $ $

COST PER HOUR

50 HP TRACTOR 22,000.00 10 350 4.43 4.07 .24 .61 .41 9.76 1.56 1.78 3.34 13.10

3/4 TON PICKUP 19,227.00 10 200 7.91 5.66 2.94 .85 .68 18.04 5.82 2.76 8.58 26.62

100 GAL SPRAYER 2,000.00 10 25 6.58 4.71 .28 .71 .47 12.75 .32 .00 .32 13.07

TRAILER 2,400.00 15 50 2.89 2.63 .16 .39 .26 6.34 .81 .00 .81 7.15

4-WHEEL CYCLE 4,698.00 10 100 3.87 2.76 .17 .41 .28 7.49 2.85 1.38 4.23 11.71

MOWER 1,000.00 10 200 .41 .29 .02 .04 .03 .80 .60 .00 .60 1.40

ROTOVATOR 2,900.00 15 200 .87 .79 .05 .12 .08 1.91 .78 .00 .78 2.70

DISK 1,400.00 15 200 .42 .38 .02 .06 .04 .92 .56 .00 .56 1.48

MECH PRUNER 13,000.00 10 200 5.35 3.83 .23 .57 .38 10.36 6.52 .00 6.52 16.88

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Use pesticides with care. Apply them only to plants, animals, or sites listed on the label. When mixing and applying pesticides, follow all label precautions to protect yourself and others around you. It is violation of law to disregard label directions. If pesticides are spilled on skin or clothing, remove clothing and wash skin thoroughly. Store pesticides in their original containers and keep them out of the reach of children, pets, and livestock. Alternate formats of our educational materials are available upon request for persons with disabilities. Please contact the Information Department, College of Agriculture and Home Economics. Washington State University Cooperative Extension publications contain material written and produced for public distribution. You may reprint written material, provided you do not use it to endorse a commercial product. Please reference by title and credit Washington State University Cooperative Extension. Issued by Washington State University Cooperative Extensio n and the U.S. Department of Agriculture in furtherance of the Acts of May 8 and June 30, 1914. Cooperative Extension programs and policies are consistent with federal and state laws and regulations on nondiscrimination regarding race, sex, religion, age, color, creed, national or ethnic origin; physical, mental or sensory disability; marital status, sexual orientation, and status as a Vietnam-era or disabled veteran. Evidence of noncompliance may be reported through you local Cooperative Extension office. Published 1996. Subject codes 274, 340.A. EB1823E

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concord grape production and est costs/wash/1996agribusiness-mgmt.wsu.edu/.../wine_grapes/eb1823.pdf · Title: concord grape production and est costs/wash/1996 Author: bishop Created